Bruno's bankruptcy trustee wants payments to creditors returned

A trustee overseeing the Bruno's Supermarkets bankruptcy proceedings has requested that creditors return millions of dollars in payments to the company. (The Birmingham News)

More than two dozen creditors in the Bruno's Supermarkets bankruptcy are being asked to fork over millions of dollars they collected from the chain in the run-up to insolvency.

The trustee overseeing the bankruptcy filed papers Wednesday asking that 32 companies send back money Bruno's paid to them in the 90 days before the Birmingham-based grocer filed for bankruptcy protection in February 2009.

The bankruptcy code allows for the "clawback" of money paid out by firms in the months before they sought legal protection from creditors. The theory is that such a provision prevents creditors from unfairly carving up a struggling firm's assets, leaving the most aggressive or best connected creditors better off than the rest.

"It is a fairness issue," said Charles Denaburg, the Birmingham lawyer who represents the trustee hired to liquidate the firm's assets for eventual payment to creditors. "The idea is that everyone owed money should suffer equally."

Numerous Birmingham companies are being asked to refund money, according to papers filed in U.S. Bankruptcy Court in Birmingham. They are led by Birmingham Tobacco Co., which is being asked to send back $3.6 million. Other companies being asked to do the same:

• Golden Flake Snack Foods, $316,527.

• Gregerson Foods, $71,818.

• Alabama Home Products, $18,841.

• Hall's Birmingham Wholesale Floral Co., $12,984.

• Lawson News Distributors, $11,541.

Also in the group are insurers, software companies and a landscaper. Attorney Denaburg said that legal arguments opposing clawback exist, and that the companies will almost surely object.

He said the sides will probably attempt to work out the objections among themselves, and that the judge in the case will decide the matter if they can't. Any money refunded would be divided and paid to the creditors as provided for in the court-approved repayment plan.

Bruno's owed about $44 million to banks, vendors and taxing authorities, according to bankruptcy court documents. It was the supermarket icon's second bankruptcy filing. The first was in 1998, after a disastrous leveraged-buyout by New York investors Kohlberg Kravis Roberts & Co. backfired.

The chain was founded in Birmingham in the 1930s by Joe Bruno. It grew rapidly after World War II, with a dominant market share, a listing on the stock market and 257 stores at its zenith. At the end, the company operated 66 stores in Alabama and Florida, employing 4,200 people. Some of the stores survive after Birmingham-based Southern Family Markets bought 31 of them.